A contract of sale may include express or implied terms, distinguished as conditions and warranties. These are statements or promises which are incorporated in the contract, and as to terms of this kind the Sale of Goods Act contains various provisions which will be discussed later.
There may also be a statement made by one party which induces the other party to enter into the contract but which is not made a term of the contract. As to the effect of such a statement the statute makes no provision except that it declares (Ont. s. 58 (1); U.K. s. 61 2) ) :
58. - (1) The rules of the common law, including the law merchant, save in so far as they are inconsistent with the express provisions of. this Act, and in particular the rule relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake or other invalidating cause, shall continue to apply to contracts for the sale of goods.
The/statute must be regarded as a single chapter in the general law of contract, and therefore it does not attempt to deal with the law of representations, conditions and warranties, in so far as they are governed by considerations common to the whole field of contract.
Chalmers, Sale of Goods, 7th ed. 1910, p. 34.
If a statement of fact, made during the negotiations for a contract of sale or at the time of the making of the contract, is not a mere "flourishing description" of the subject matter or a mere expression of opinion on the seller's part about something upon which the buyer has an opportunity of forming his own opinion, it may be a representation which procures the consent of the other party or it may be a term of the contract, but it will not be treated as a term unless it appears that it was the intention of the parties that it should be a term, and the circumstance that the seller assumes to assert as a fact something of which the buyer is ignorant, though valuable as evidence of intention is not conclusive of the question.
Heilbut v. Buckleton,  A.C. 30; Gardner v.
Merker, 1918, 43 O.L.R. 411, 44 D.L.R. 217; Harrison v.
Knowles,  1 K.B. 608; Smith v. Land and House
Property Corporation, 1884, 28 Ch. D. 7, and cases cited in argument.
A statement of fact can be binding upon the person making it only as part of a contract, or by way of estoppel, or as amounting to an actionable wrong. If the statement is of something to be performed in the future it must be a promise binding by way of contract, if binding at all. If a statement of fact is not made a term of the contract, and it turns out to be false, the remedies of the person misled will depend in part on whether the misrepresentation was made fraudulently or innocently. The contract may be rescinded on the ground of misrepresentation, fraudulent or innocent. In order to recover damages for deceit, however, the person who was misled must show that the defendant made a false representation knowingly, or without belief in its truth, or recklessly, careless whether it was true or false, and it is not sufficient that the defendant had no reasonable grounds for his belief, if in fact he made the statement in the honest belief that it was true. On the other hand, an innocent misrepresentation will not itself be a ground for an action for damages, but the person who made the representation may be estopped from denying its truth and may thus be disabled from proving his defence to an action based upon the truth of the representation.
Pollock, Contract, 8th ed. 1911, pp. 556-9; Derry v. Peek, 1889,14 App. Cas. 337; Redgrave v. Hurd, 1881, 20 Ch. D. 1; Newbigging v. Adam, 1886, 34 Ch. D. 582; Anson, Contract, 15th ed. 1920, pp. 191-197; Long v. Smith, 1911, 23 O.L.R. 121; Caldwell v. Cockshutt Plow Co., 1913, 30 O.L.R. 244, 18 D.L.R. 722; Dominion Paper Box Co. v. Crown Tailoring Co., 1918, 42 O.L.R. 249, 43 D.L.R. 557.
As to estoppel see Ewart, Estoppel, chapter 8 (Fraud or bad faith not essential) ; Low v. Bouverie,  3 Ch. 82; Balkis Consolidated Co. v. Tompkinson,  A. C. 397.
Whether the misrepresentation be innocent or fraudulent, the contract cannot be rescinded after the position of the parties has been changed so that the former state of things cannot be restored, or after third parties have in good faith and for value acquired proprietary or possessory rights under the contract, or after the injured party has done some act which amounts to an affirmation of the contract. The contract must be/rescinded within a reasonable time, that is, before the lapse of a time, after the true state of things is known, so ling that in the circumstances of the particular case the other party may fairly infer that the right of rescission is waived.
Pollock, Contract, 8th ed. 1911, pp. 622 ff. cf. Anson, Contract, 15th ed. 1920, pp. 193, 216-7; Addison v. Ottawa Auto and Taxi Co., 1913,10 O.L.R. 51, 16 D.L.R. 318 rescission with compensation by buyer for use and deter oration).
As to a third party acquiring a good title from a person with a voidable title, see chapter 4, 42.
In the case of an executed contract for the sale of a chattel or chose an action, the court will not grant rescission on the ground if innocent misrepresentation. In such a case fraud must be proved in order to entitle the plaintiff to succeed.
Seddon v. North Eastern Salt Co.,  1 Ch. 326, and cases cited; Angel v. Jay,  1 K.B. 666; cf. Bell v. Macklin, 1887, 15 Can. S.C.R. 576, at p. 581.
In Kennedy v. Panama, etc., Co., 1867, L.R. 2 Q.B.580, at p. 587, Blackburn J., after referring to several cases in each of which a contract had been set aside on the ground that the buyer had not received the thing he had paid for, said:
There is, however, a very important difference between cases where a contract may be rescinded on account of fraud, and those in which it may be rescinded on the ground that there is a difference in substance between the thing bargained for and that obtained. It is enough to show that there was a fraudulent representation as to any part of that which induced the party to enter into the contract which he seeks to rescind; but where there has been an innocent misrepresentation or misapprehension, it does not authorize a rescission, unless it is such is to show that there is a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of consideration. For example, where a horse is bought under a belief that it is sound, if the purchaser was induced to buy by a fraudulent representation as to the horse's soundness, the contract may be rescinded. If it was induced by an honest misrepresentation as to its soundness, though it may be clear that both vendor and purchaser thought that they were dealing about a sound horse and were in error, yet the purchaser must pay the whole price, unless there was a warranty; and even if there was a warranty, he cannot return the horse and claim back the whole price, unless there was a condition to that effect in the contract.